Monday, December 20, 2010

Complete Analysis 2010 Tax Relief Act

After months of debate and compromise between President Obama and congressional leaders, a measure that extends tax cuts enacted by George W. Bush, introduces new tax incentives and extends jobless benefits cleared the House and Senate and is headed to the president for his signature. Under the deal, most Americans will pay lower taxes next year. Below is a summary of the items we feel are most relevant:

Extension of Bush Tax Cuts

- Long term capital gains and qualified dividend rates (15%) extended through December 31, 2012
- Lower individual income tax rates extended through December 31, 2012
- AMT Exemption "patch" extended through December 31, 2012
- The child tax credit will double from $500 to $1,000 per child

Estate Tax Relief

The new law brings back the estate tax through December 31, 2012.

- The top estate tax rate will be 35%
- For 2011, the lifetime exemption amount will be $5 million per individual (indexed for inflation after 2011)
- Heirs will, again, be allowed to inherit assets with a “stepped-up basis”

Incentives for Businesses to Invest in Machinery and Equipment

- 100% bonus depreciation write-off for the cost of property placed-in-service from September 9, 2010 through December 31, 2011
- 50% bonus depreciation write-off for the cost of property placed-in-service from January 1, 2012 through December 31, 2012
- Beginning January 1, 2012, the maximum Section 179 depreciation limit will be $125k.

Temporary Employee/Self-Employed Payroll Tax Cut for 2011

For the 2011 tax year, the 2010 Tax Reform Act gives a two percentage point payroll/self-employment tax holiday for employees and self-employeds. As a result, employees will pay only 4.2% Social Security tax on wages and self-employment individuals will pay only 10.4% Social Security self-employment taxes on self-employment income up to the maximum threshold of $106,800.

Expired Business Tax Breaks Retroactively Reinstated and Extended Through 2011

- Research & Development tax credit
- New markets tax credit
- 15-year write-off for qualifying leasehold improvements, restaurant buildings and improvements, and retail improvements
- Special expensing rules for certain film and television products
- Empowerment zone tax credit
- Work opportunity tax credit

Expired Individual Tax Breaks Retroactively Reinstated and Extended Through 2011

- $250 above-the-line deduction for certain expenses of elementary and secondary school teachers
- Election to take an itemized deduction for State and local general sales taxes
- Above-the-line deduction for qualified tuition and related expenses
- Treatment of mortgage insurance premiums as deductible qualified residence interest
- Exclusion of 100% of gain on certain small business stock
- Energy efficient appliance tax credit
- Energy-efficient improvements to existing homes tax credit